How does Bitcoin gambling affect average cost basis?

[m4king]

Hi, apologies for the softball question - not an experienced investor at all, just want to make sure I get it right.

Imagine this situation:
John owns 100 bitcoin, bought for $40,000 so an average cost basis of $400/coin.

a)
How does a 10 bitcoin gambling profit (made at $1000/coin) affect his average cost basis?

b)
How would a 10 bitcoin gambling loss, also at $1000/coin, affect his average cost basis?

I'm assuming the answer are:
a) $50,000/110 = $454.55/coin
b) $36,000/90 = $400/coin

Please correct me if I'm wrong.

Thanks,

Edit:
What if I a) happens first, then 50 days later b) happens (assume both at $1000/coin)?

Did John just raise his average cost basis to $45,454.55/100 = $454.55/coin despite having the 100 coins he started with?

[bitwager]

I am not an accountant or a lawyer, but I'll share my thoughts...

A gambling win of bitcoins has two tax-related effects:
1. The income realized in that moment (in USD terms of the current market value)
2. The current market value becomes the cost basis for those coins

A gambling loss of bitcoins may also have two tax-related effects:
1. The loss realized in the moment (in USD terms of the current market value) which can be deducted against gambling wins
2. A possible effect on cost basis (which I will now explain below)

Buying and selling/spending bitcoins is pretty straightforward from a tax perspective.  Cost basis is set when bitcoins are bought (or won gambling as mentioned above) and a capital gain (or loss) is realized when they are sold or spent.  FIFO (first in, first out) is the typical method used, so that if you sell/spend a portion of your bitcoins, the earliest bitcoins are the ones you are using and thus it is their cost basis which should be used for calculating capital gains.

However, where it gets tricky is with gambling losses.  If you have 100 bitcoins, 50 that you bought for $400/coin and 50 that you bought for $1000/coin, and you then gamble and lose 10 bitcoins, following the same FIFO rule, the 10 that you lose are the first 10 that you bought, which in this case would be coins with a cost basis of $400/coin.  This doesn't change the loss realized in the moment in USD terms to be deducted against gambling winnings that year, but it does have a potentially large effect on the cost basis of the remaining coins.  Following FIFO for the loss, you would be left with 40 coins at $400/ea cost basis and 50 coins at $1000/ea cost basis.

If, however, for some reason, you are supposed to have act as if you "lost" 10 bitcoins that are the higher $1000/ea cost basis, you would be left with 50 coins at $400/ea and 40 coins at $1000/ea.